Evaluating Trading Strategies
16 Pages Posted: 3 Aug 2014 Last revised: 26 Aug 2014
Date Written: August 25, 2014
We provide some new tools to evaluate trading strategies. When it is known that many strategies and combinations of strategies have been tried, we need to adjust our evaluation method for these multiple tests. Sharpe Ratios and other statistics will be overstated. Our methods are simple to implement and allow for the real-time evaluation of candidate trading strategies.
Keywords: Sharpe ratio, Multiple tests, Holm, BHY, Bonferroni, Strategy selection, Backtest, Haircut, Haircut Sharpe Ratio, Data Mining, Machine Learning, Higgs Boson, Trading Strategies, Out-of-Sample tests, In-Sample tests, FDR, FWER, Capital IQ, PBO
JEL Classification: G12, G14, G30, G00, C12, C20, B41
Suggested Citation: Suggested Citation